Korea Scale Up 1: Strategies to Fund Your Business│Yancey Strickler (Kickstarter, Co-Founder)

how do you think the biggest difference between institutional investment and the crowdfunding platforms yeah i think it's interesting i i think that there's um the differences in motivation you know for for an institutional investor for a vc you are meeting that entrepreneur you're doing that diligence thinking about a return an exit an eventual outcome you know even if you meet someone that has a a product that you imagine might work you as an investor still have to ask yourself well but to what degree will it work what are the competitors there's a lot of things that you're having to to ask yourself for for a crowdfunding project and this was quite intentional for us there there is no profit motive there there is no diligence being done from the perspective of well i make out well on this there is the diligence of does this person seem like they know what they're doing do they have a track record is there enough do they show enough to make me believe in them it's a much lower bar you know most most kickstarter projects would be bad businesses and and they don't aspire to be good businesses you know someone who makes and self-publishes comic books even if they're successful that is a hard business to model on but what it does reveal is how much opportunity and how much meaning there is for creating projects that don't reach a 10x 100x scale and don't even aspire to but instead just engage the internet to a large degree and just like hey let's let's be the thing that people think is cool today yeah i mean i i think it's i think it's super interesting and that one of the you know one of the benefits that's obvious now but maybe we still take for granted is just the the benefits of the public nature of crowdfunding and allowing the public to be a part of your story from early on and how much that speaks to the currency of the web and just what what it what the fandom of the web is like the kind of ownership people feel over projects and stars that they love and how that has evolved into subscription funding with patreon where you have a lot of people whose livelihoods are just being supported they're being paid rent by their fans and even that you even see that model coming to like pornography with only fans like this sort of like peer-to-peer direct pornography site that is actually also using this model at this point so there's something really interesting there and comparing it to crowd lending is also interesting because a lot of those big crowd lending platforms studies later found that a lot of the money coming into them was actually coming from those institutional banks that by the time those got big enough like all the smart people with a lot of money were like hey there's a pretty good return here let's like maximize this and you know as much as we can to where actually like the peer-to-peerness of it was you know became less true as they grew bigger just because money was looking for you know just a way to make money but these but these smaller communities and artists owning a fan base of a thousand people and being paid ten thousand dollars a month to just do whatever they want is you know it definitely has as ties to the old patronage systems but that's a fundamentally different kind of relationship and a hard one for others to intermediate and so i think it marks and we're seeing it happen with paid communities now too which is a another new space of the web where you're seeing people using money to create different shared goals and using the architecture of the web to make that connection i think that the the direct individual and collective funding space is like still comically early and that you know by the time you know 30 years from now like i i just think that this is just going to keep growing and that we still underestimate the potential of the space you were mentioning uh that uh crowdfunding is probably at the beginning not at the beginning but still a lot of time ahead what what nutrients you you mentioned them briefly but what nutrients do you see arriving in the coming years maybe some have already come because of uh how how do you uh how do you see the the next five five to ten years yeah well there's there's gonna i mean we're seeing it now let's say musicians the end of live music right has left this enormous gap in the music industry where like how is that meant to be closed in the past that was a fan buying a ticket an experience you know there was a set theater that allowed for that transaction to happen we're gonna have to redefine those spaces you know and that that is happening through covet it's all still a bit awkward um but i think that that that will be uh one big thing usually the venture capitalist is looking for a return so he's looking to sell its uh shares in in your company in uh three to six seven years uh uh horizon which makes it a midterm short-term investors not a very long-term investor so instead of uh describing very very theoretically uh what a venture capital is i thought that it was maybe more interesting for the audience and especially for founders to have a look at how we analyze deals so how we look at startups who come to pitch their projects and how we decide if we're going to finance them or if we are going to drop to drop them so i will show you some slides uh about and in what we call an investment memo and it's on the basis of this kind of document that after a due diligence process we decide on not to invest so i'm not sure that you can see us uh yeah okay oh i think it's going too fast okay so um first uh this is really a document that we use to make our decision so first of all we will start to look at the business of the of the company and we'll write a business summary and description of the the deal that is presented to us so i took the example of a gaming company a mobile gaming company and so what is on this slide it will be a business outlook so the description of the business of the company also will add some major kpis so major figures about the revenues the profit or the losses of the companies the cash burn the growth perspectives these kind of things so economic economic figures we will also say how much money the company has raised so far with which investors uh were the business angels who are their friends and family where they're already venture capitalists etc we'll look at how the deal was sourced and deal terms so how much are we going to invest if we invest what share of capital we will obtain in in exchange for this money also we will look and it's very important for us at what will be the use of the proceeds so what will the company do with the money we put in the in the company will they hire new people will they reinforce r d expenses will they launch a new product will they open new countries these kind of things and also we'll try to look at the exit perspective so will this company probably have an ipo so become public be listed on a market or is it a good candidate for an acquisition by a bigger player this kind of uh of things then we look at the product so for example this was a game we look at the product we describe the product and we see if there is a a tech edge but it's not really the case in a game in a mobile game but we try to identify if there are barriers to entry if the product has something different uh if the if it's product if it's market fit etc so we'll try to really assess the quality of the of the product and also its perspectives for further development um then um okay we look also sometimes at the product roadmap so that's the next game that was going to be developed for example then we look at market and competition so this is also a very important part we try to assess how the company position positions itself on a mapping with strengths and weaknesses compared to the uh to the competitors then we again we try to analyze the direct competition we make comparisons between kpis and etc and characteristics of the of the companies then sometimes this in this case we analyzed a game that was in direct competition with the company's game and then comes a very important part is the business analysis so that for that we it comes to the really financial analysis of the of the deal and for that we rely a lot on the business plan of the budget that are presented to us by the company and then the important thing is really to challenge what the company says so usually they present a business a business plan over the next five years say for example that is based on certain assumptions assumptions in terms of uh growth of sales growth of revenues etc and sometimes we need to challenge these assumptions and to to to to try to benchmark uh between a low case scenario a base case scenario and a best case scenario to see in which uh revenue or profit uh uh passed the company is uh is positioned so this part is really very important and it requires some financial analysis and modalization as well then we will analyze what we call the equity story so we will look at the capitalization table so who owns which part of the company who who owns which shares of the companies before we invest and then after we invest so that will be the current cap table and cap table after investment so who are the investors who own the company basically are there interests aligned uh are there some people some investors who have a too big a share and who might be a problem when for example we want to exit this kind of issue so the the what we call the cap table the capitalization table who is sitting around the table in the capital of the company is something very important to assess also the quality of a deal um okay that's also we analyzed sometimes when our very big investors who have large shares of the company we will look at them and try to assess their interest in the company are they going to be to want to sell very quickly on the contrary will they want to keep their shares very long etc so we try to identify the interests of these uh of these big investors the world knowledge forum

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